The Most Important Inflation Chart There Is

The U.S. Bureau of Labor Statistics just released March consumer price index data.

"Core" inflation — a measure that ignores food and energy prices — unexpectedly accelerated to 1.7% from a year earlier, up from 1.6% in February. Gains were driven by an acceleration in housing prices, which account for a little more than 41% of the whole index. The year-over-year change in the housing component rose to 2.8% from 2.5%, marking the fastest advance in housing prices since 2008.

Inflation — and especially core inflation, of which housing is a part — is a key input to Fed policy.

The year-over-year change in the housing component of CPI seems to lag the year-over-year change in the S&P/Case-Shiller 20-City Composite Home Price Index by about 19 months, as the chart illustrates.

Given the rise in home prices we have already observed, inflation seems likely to pick up in the months ahead, which could put further pressure on the Fed to think about tightening monetary policy, especially if positive trends in the labor market continue.